What Is A Bond?

A bond is a financial product that allows an investor to lend money to a company or government. The company or government issues a bond that is essentially an IOU, which is then purchased by investors. Investors will receive the full amount (principal) at the expiration of the bond (maturity), along with an interest rate for the duration of the bond (coupon). Bonds are used for financing purposes and the most commonly known ones are:

  • Corporate Bonds - issued by companies
  • Municipal Bonds - issued by a city or local government
  • Government Bonds - issued by governments, i.e. US Treasury Bills

The maturity on a bond can range from 3 months to 30 years and the interest rate usually increases with the maturity of the bond (known as the yield curve). Bond prices and interest rates are negatively correlated so as the price of a bond falls, the relative yield rises ($5 interest payments on a $80 bond yield relatively more than on a $100 bond). Regardless of the actual value of the bond, it is always referred to as 'par', and all future prices are denoted accordingly as a percentage of the original value.

**To learn more about this concept and become a master at bonds and fixed income, you should check out our Bond Course - Fixed Income (coming soon!). **

Related Terms

Return to Finance Dictionary

 

 

 

 

Start Discussion

Popular Content See all

Received my PWP rejection email!
+91IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Evercore the next Bulge Bracket bank?
+24IBby Intern in Investment Banking - Mergers and Acquisitions">Intern in IB-M&A
I got a top IB SA offer thanks to WSO
+17IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Liontree the next bulge bracket bank?
+17IBby 1st Year Analyst in Sales & Trading - Equities">Analyst 1 in S&T - Equities
Biggest Regret in Undergrad
+15IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Virtual Summer Interns - which banks sent you WFH gear?
+15IBby Intern in Investment Banking - Industry/Coverage">Intern in IB - Ind

Total Avg Compensation

October 2020 Investment Banking

  • Director/MD (17) $704
  • Vice President (49) $326
  • Associates (263) $229
  • 3rd+ Year Analyst (36) $168
  • 2nd Year Analyst (147) $159
  • Intern/Summer Associate (136) $141
  • 1st Year Analyst (579) $130
  • Intern/Summer Analyst (555) $82

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.4
2
Jamoldo's picture
Jamoldo
98.3
3
Secyh62's picture
Secyh62
98.2
4
CompBanker's picture
CompBanker
97.8
5
redever's picture
redever
97.7
6
Addinator's picture
Addinator
97.6
7
Edifice's picture
Edifice
97.6
8
NuckFuts's picture
NuckFuts
97.5
9
frgna's picture
frgna
97.5
10
bolo up's picture
bolo up
97.5